BACHELOR OF BUSINESS ADMINISTRATION

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BUSINESS ADMINISTRATION

FINANCIAL ACCOUNTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Evaluating theories-logic & evidencePositive Theories20. Various accounting research journals show that many studies that adopt Positive Accounting Theory as theoretical basis of the argument fail to generate findings consistent with the theory (however, some do). Why there is criticism towards this theory?i. Have been criticized for not providing prescriptionii. Failure to support a theory due to data being inappropriately collectediii. Provide several choices which any of it could be correctiv. Lack of empirical observation
A
ii and iii
B
iii and iv
C
i and ii
D
i, ii and iv
Explanation: 

Detailed explanation-1: -Positive accounting theory seeks to understand why accounting practices are employed by accountants in different circumstances and by different firms. Three hypotheses in positive accounting theory: bonus plan, debt covenant and political cost.

Detailed explanation-2: -Positive accounting attempts to describe accounting as it is actually done. By contrast, normative accounting attempts to describe accounting as it should be done. It aims to describe what a company or investor should do, often using subjective morality derived from some theory.

Detailed explanation-3: -STRUCTURE OF ACCOUNTING THEORIES Accounting Principles viz Cost Principle, Revenue Principle, Matching Principle, Objectivity Principle, Consistency Principle, Full Disclosure Principle, Conservatism Principle, and Materiality Principle.

Detailed explanation-4: -These factors are taxes, regulation, management compensation plans, bookkeeping costs and political costs, and they are combined into a model that predicts that large firms that experience reduced earnings due to changed accounting standards favor the change.

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